Microsoft (MSFT.US) shares were severely battered during Thursday's sell-off, with its market capitalization instantly plummeting by $357 billion, marking the second-largest single-day market value loss in U.S. stock market history. The software giant's stock price closed down a staggering 10%, its largest single-day percentage drop since March 2020. This followed the company's earnings report released after Wednesday's market close, which revealed record-level artificial intelligence expenditures alongside a deceleration in the growth of its key cloud business segment. Data indicates that the only larger single-day market cap shrinkage in history was NVIDIA's $593 billion rout last year following DeepSeek's release of a low-cost AI model. The market value erased from Microsoft even exceeds the total individual market capitalization of over 90% of the constituent companies in the S&P 500 index.
The chill from Microsoft's record-setting second-largest single-day market value loss in U.S. stock history spread to other sectors, with peers including Alphabet and NVIDIA seeing their stock values decline by over $100 billion at one point during Thursday's trading. However, Alphabet's shares subsequently recovered, closing up 0.7%, while Amazon (AMZN.US) ended the day down 0.5%. This sell-off occurred as investor skepticism intensifies regarding whether massive tech companies pouring hundreds of billions of dollars into AI will ultimately see a worthwhile return. Microsoft's financial report showed its capital expenditure surged 66% last quarter to a record $37.5 billion, while the closely-watched growth of its Azure cloud computing business slowed compared to the previous quarter.
Microsoft also indicated it faces some capacity constraints concerning AI demand. Furthermore, its remaining performance obligation stands at a massive $625 billion, with approximately 45% originating from its strategic partner, OpenAI. Microsoft's Chief Financial Officer, Amy Hood, stated on Wednesday's earnings call, "Approximately 45% of our commercial RPO balance is from OpenAI. The remaining balance grew 28%, reflecting continued broad-based demand for our portfolio of products."
Matthew Maley, Chief Market Strategist at Miller Tabak + Co., commented, "As it becomes increasingly clear that Microsoft is not getting a strong Return on Investment (ROI) from its massive AI investments, its stock needs to be revalued lower to a level more consistent with its historical fair value." This represents one of the worst performances in Microsoft's history. Since its IPO in 1986, the stock has experienced only a handful of larger declines. If the downward trend persists, this would mark Microsoft's most severe sell-off since March 16, 2020, during the COVID-19 pandemic outbreak, when its stock plunged 14.7%. Looking further back, one must trace back to April 24, 2000, when Microsoft's stock crashed 15.6%. That month, the company faced a dual blow as a U.S. District Judge ruled it had violated the Sherman Antitrust Act, coinciding with the beginning of the internet bubble's burst.
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